This roundtable was originally published November 2, 2015.

About the Upstart Farmers Roundtables

Upstart Farmers Roundtables are an informal, biweekly event. Using Google Hangouts video calling, a small group of Upstart Farmers comes together to share their experiences and learn from each other. Each week is guided by a discussion topic, with growers welcome to ask their own questions.

Roundtables are exclusively for Upstart Farmers, and recordings are only released to the Upstart Farmers Community.

Roundtable: Negotiating with Produce Managers

Today’s discussion is about negotiating with produce managers.

Understanding PM’s

There are a few main things to know about produce managers before you even go in to negotiate.

1. They are good people, but they are definitely salesman and are there to negotiate. As soon as you start talking to them, they are there to try and talk you down on price as low as they possible can because that’s better margins for them. They get rewarded for having good margins and making a lot of money.

2. They don’t necessarily understand that you’re bringing something higher quality to the table or that this is something your consumers want more of. Or they do know, and they are just pretending not to so they can talk you down. They will pick the lowest price vendor and use that as their starting point. Don’t fall for that!

3. The moment you open your mouth, that’s the moment the negotiating begins. Negotiating requires you to be a salesman!

4. Almost every single farm that’s gone in and stood really firm on pricing, has gotten it. The trick is getting in on the shelf, and then you can adjust your price overtime on volume.

Questions

Is it a good idea to give a cheaper price for a few months, and then bump it up? Can you bump it up in small increments, or up 10% after a year?

We don’t recommend it. That’s a hard argument to win and consumers don’t like to see a price increase. Some managers will work with you, but I would recommend starting high and then decreasing over time. The best thing to do is negotiate on margin, not price.

A 50% markup is pretty standard and fair. If you go in and say “here’s the markup I want you to have,” they may think about that for a few seconds, and in the end they may think that $3 or $4 for a pack is too expensive in their store. At which point you say, “let’s try it. Let’s test it and see if it’s too much.” You’ll find that PM’s will muscle you down on price by arguing that they can’t get a big enough margin and that the price is too high for their customers. Then you walk in the store and they’re charging more than competitors to get a higher margin because you negotiated on wholesale price rather than retail price.

What about packaging and pricing?

Although clamshells come in with more cost, it will immediately differentiate your product from the more common things like herb sleeves. The look will catch the customers’ eyes. Customers don’t always read long enough or care enough to notice “local.” It’s also good to remember that customers don’t want to pay for trash or for roots that they aren’t going to use. This can be a selling point when you present your product if it’s leaves and stems only.

How can I make the produce manager want to give me business? What’s the lowest I should offer on pricing?

The lowest you should go is to match the current pricing, never below it. Make yourself the hero in the negotiation – you’re the local farmer. Tell them. “I don’t have the scale the other big farmers do; their costs are lower. The best I can do is match this price and I‘d be interested in seeing the price go up over time once I prove there is customer loyalty here.” You have to have the conviction that you are offering a better product than anyone else. And don’t be afraid to be bold and tell them to taste the difference.

What if the PM says no to you?

If the PM says no to you, just say “Okay. I’ll try you again in 3 months.” Work on getting into some others stores and establish yourself. Then, come back and show the PM that you’ve got amazing traction at all these others stores, and tell him his customers are missing out.

What if a PM asks you do a private label? Any stance on that?

At volume, that works but it depends on the markets and what you’re doing as a grower. The thing to remember is that it increases your costs for labeling and private labels often expect discounts. When you do a private label you will probably be doing big volumes for their stores. You’ll get a big stable, fat contract but they will negotiate you down because of that.

This is fine if you’re a pretty large scale farm. At a small scale, say they have to handle the additional label costs and they are going to pay a premium for it. Make it worth your while. The thing that comes with private label is that you do it at the sake of brand building, which is one benefit you have as a local grower, growing in unique ways, or producing a premium product. You have the ability to build your brand. Unfortunately, most consumers associate private label with lower quality so you have to be willing to accept that. They need to be willing to pay more to make up for that opportunity cost and they probably won’t be willing to do that, but it’s worth talking about. Everything is for sale, but don’t accept a price you aren’t happy with.

How do you asking for a premium price without sounding crazy, or letting the PM make you feel silly?

You have to operate with conviction. Be warned though, if you come in and operate with conviction, the PM’s are smart enough to make you feel silly about your sense of conviction as a strategy to push you down. But if you are sincere and knowledgeable this won’t work.

Walking in with a clear understanding of normal margins and typical wholesale prices is important. A good way to get a feel for the prices other competitors are charging is to divide the cost of their product on the shelf by .66. You can also have a lot of success with directly emailing the producer. You would be surprised how open and honest anyone who is not the PM is about their prices. If you go in with that knowledge, and the sincere conviction that you have a premium product, worth a premium price, that the customers are going to love, it will be harder for them to try and talk you down.

But remember, the first rule of negotiating is always be willing to walk away. Some people just don’t want to work with you. And some people are such a pain to work with that they are not worth working with. Picking customers and knowing when to fire customers is an important part of that process. Don’t be afraid of saying no. Don’t be afraid of getting market somewhere else.

 A PM told me I was crazy to think my market would absorb 65 lbs of basil in Raleigh, NC, but I don’t see why it wouldn’t. Is that a tactic they use?

As far as volumes go, it totally depends on market. Chances are you were just talking to small distributor, but there is no reason a market that size couldn’t absorb that. [It has a population almost 1,000,000 in the greater area. It’s also ranked as a the #1 tasty city.] 1% of a million person market is 10,000 people. That’s plenty people to absorb 65 pounds, especially if it’s a market that is concerned with high quality of food.

Market research should have been one of the steps you took while creating your business plan, so refer back to that for a judgement on what your market can absorb. If you want to sell one customer you sell a lot, talk to a distributor. If you’re okay with transaction costs talk to a PM. Or, if you want to keep all the profit to yourself, do a CSA, but understand that comes with a lot of work.

Can you use the life-span of a plants like basil when negotiating?

Yes. There are two approaches you can take. 1. Use the point that multi-harvest plants like basil are more sustainable because they take less resources for output. Or, 2. you can say that you only repeat harvest up to a certain point and then replant so that your customers are getting a top of the line product. This makes you sound like a knowledgeable farmer.

BONUS Question: I’ve noticed that when I’m trying to negotiate with restaurants, they won’t tell me what they want; they only want me to tell them what I have. What’s up with that? How do I handle that?

Most restaurants are used to being constrained to whatever is available, especially with local farmers. If they are taking that stance, you can say you whatever you think would be appropriate for their menu. If they get excited over something, tell them you’re out of it right now (if you don’t have it) as an excuse, but that you can get it to them, and then get growing. If it’s an Italian restaurant tell them you have parsley. If it’s a bar, tell them you have mint. Just play up what you think they need and what you know you can grow, and get that for them.